Economic News Tied to Employment

On August 15th, 2012, posted in: Economic News, Newsletter by

So how strong was the employment report? Politicians are touting the strength of the numbers. The stats say 172,000 new jobs were created. And while a lot of economic data came out last week; much of it negative, but the surprisingly strong employment report seemed to get the focus of media attention. Nonfarm payrolls gained 163,000 jobs in July, better than the consensus estimates which had expected only about 100,000 new jobs.  That was enough to send financial markets into growth mode. But are the numbers true? Look at this graph.

If the official numbers factored in the decline in the work force – the number of people who have given up looking for work and are off unemployment, the actual rate is much closer to 11% unemployment. This is the true figure.

Let’s drill down a little bit and see what else is in the jobs data:

  •  Private sector jobs increased by 172,000 while government employment dropped about 9,000 jobs.  At least 6,000 of those who lost jobs were state employees.
  •  According to the BLS, 24,000 new jobs were “goods producing.” While services, such as healthcare, education, leisure, and hospitality created 139,000 new positions.
  • Despite the “good news”, the nation’s unemployment rate actually increased to 8.3% (8.254% unrounded) from 8.2% (8.217% unrounded). The initial jobless claims remained high at 365,000 for the week, an increase of 8000 over last week, almost matching the four week moving average of 365,500.  But the lack of a very strong recovery doesn’t mean we’re not recovering at all. The unemployment rate is down 0.8 points from a year ago and economists expect further modest improvement in the year ahead.

The folks at Moody’s Analytics/Dismal Scientist (www.dismal.com) commented, “It is unlikely this pace of payroll job growth will be sustainable over the next few months.”  They predict job growth will average around 120,000 per month through the rest of 2012 instead of nearly 170,000.

Here is some other observations from the data:

The all important ISM non-manufacturing index increased to 52.6 in July, beating the consensus expected 52.1. (Levels above 50 signal expansion; levels below 50 signal contraction.)

The ISM manufacturing index increased to 49.8 in July from 49.7 in June, coming in below the consensus expected 50.2. The major measures of activity were mixed in July.

The new orders index rose to 48.0 from 47.8, the production index gained to 51.3 from 51.0. The supplier deliveries index declined to 48.7 from 48.9 and the employment index fell to 52.0 from 56.6. The prices paid index rose to 39.5 in July from 37.0 in June.

The ISM manufacturing index came in below 50 for the second month in a row, suggesting contraction in the factory sector. However, it’s important to keep in mind that when financial strains, such as recent news out of Europe, push down consumer confidence, it also often pushes down the ISM index as well.

On the inflation front, the prices paid index rose to a still depressed 39.5 in July, reflecting the recent steep drop in energy prices and other commodities. Given the loose stance of monetary policy, the ISM index should rebound, both for activity indicators as well as prices.

The Census Bureau reported construction spending increased 0.4% in June, matching consensus expectations. Including revisions to April/May, construction was up 1.5%. Housing was up 1.3%. Commercial construction was up 0.4%. Total public construction was unchanged in June.

Employment costs increased +0.5% in 2Q 2012, and just +1.7% over the past year. This is another indicator of low inflation pressure in the economy as a whole.

In still other news, autos and light trucks were sold at a 14.1 million annual rate in July, 2% below June but up 13.6% from a year ago.

Personal income increased +0.5% in June, more than spending, which meant the nation’s savings rate gained to 4.4% of disposable income, the highest rate in a year.  Individuals and families are continuing to “deleverage.”  That’s probably good for them individually, but it also holds down GDP growth.

 WHAT HAPPENED IN THE MARKETS

After four straight down days, the market rallied on Friday. European equities rallied to their highest levels since April on speculation the policy makers will take action to ease the debt crisis. This sent the markets up more than 2.5% for the week.

Past performance is no guarantee of future results. Indexes are not available for direct investment.

The jobs reports contributed to the exuberance. But more important the earnings reports showed consistent improvement among the large public companies. Even the Treasuries rebounded with as the markets improved and reduced the demand for safe assets.

It is likely the markets will remain stable as we move closer to the political conventions and the November elections.  If there are positive earnings reports for the third quarter, we might see some upward movement,  but most investors will likely sit on the sidelines until the November election results are known. The future tax policy of the US will drive this indecision.

The markets saw the Euro (€) continue its slow recovery against the U. S. dollar.  This helps American manufacturers who have been dealing with weak sales in Europe and much slower growth in China, India, Brazil and the other emerging market countries.

The markets for oil and gas prices were relatively stable.

 WHAT HAPPENED IN PERSONAL FINANCE

Money magazine (www.money.com) reports the percent of households carrying credit card debt increased from 43% in 2010 to 47% in 2012.   However, the average amount of debt dropped from $16,400 in 2010 to $14,500 this year. This is good news as the rates on credit card debt is so high.

Hope this helps you gain a better perspective on the markets and your portfolio performance.

 

This information is compiled by Guy Baker from an assortment of news feeds including First Trust, Yahoo Finance, Bloomburg and others. This information is intended to be informational only. This newsletter contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Investing involves risk, including the potential for loss of principal. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy.

 

 

 

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